Monday, April 05, 2004

Outsourcing creates jobs

Industry report says offshore outsourcing will boost economic growth, lower inflation, create jobs

NEW YORK (CNN/Money) - The outsourcing of prized information technology jobs overseas has created tens of thousands of new jobs in the United States, according to a recent study commissioned by the information technology industry.

Global Insight, a private consulting firm hired by the Information Technology Association of America, an industry lobbying firm, said that, while outsourcing does result in some short-term U.S. unemployment, its long-term benefits outweigh its costs.

"The cost savings and use of offshore resources lower inflation, increase productivity and lower interest rates," Global Insight said in a statement. "This boosts business and consumer spending and increases economic activity."

According to this study, these benefits "ripple" through the economy, leading to about 90,000 net new jobs through the end of 2003. This effect, the study said, should produce a total of 317,000 net new jobs through 2008.

The study also said outsourcing added some $33.6 billion to U.S. gross domestic product (GDP) in 2003 and could add a total of $124.2 billion through 2008.

And outsourcing lifts the wages of U.S. workers, according to the study, though minimally -- real wages were 0.13 percent higher in 2003 because of outsourcing and could be 0.44 percent higher by 2008.

Global Insight estimated that U.S. firms will spend about $31 billion in offshore IT services in 2008, compared with about $10 billion in 2003, mainly due to expected cost savings, which could reach $21 billion in 2008.

The study acknowledged the impact of outsourcing on U.S. IT workers, but warned against what it called protectionist measures that would restrict the flow of jobs overseas. Instead, it recommended offering displaced workers government assistance and new training.

It did not address the potential costs to businesses of offshore outsourcing, highlighted by a recent study by a human resources consulting firm, Hewitt Associates (HEW: Research, Estimates), including the costs of shutting down U.S. operations, communicating with overseas workers and managing supply chains.

The Global Insight report comes amid much controversy about the practice of "offshoring," which has helped at least a little to keep the U.S. job market anemic in recent months. Democratic presidential candidates, including likely nominee Sen. John Kerry of Massachusetts, have accused the Bush administration of doing too little to stop jobs from moving overseas.